- France’s debt situation is particularly alarming. The country holds around €3.35 trillion ($3.9 trillion) in consolidated national debt, equivalent to roughly 113% of GDP and expected to rise to 125% by 2030. With a budget deficit of 5.4–5.8% this year, France now carries the largest deficit in the European Union, second only to Greece and Italy in debt-to-GDP ratio.
- This fiscal pressure necessitates significant cuts to meet EU targets, but political resistance makes austerity measures highly contentious.
France experienced a dramatic political upheaval on Monday, as Prime Minister Sebastien Lecornu resigned just 14 hours after announcing a largely unchanged cabinet.
The resignation, coming less than a month into his tenure, sent shockwaves through financial markets, with the euro falling against major currencies and French government borrowing costs spiking sharply. Despite stepping down, Lecornu accepted President Emmanuel Macron’s request to help draft a plan for “stability for the country” by Wednesday evening, creating an unusual twist in the political saga.
The abrupt resignation has raised fears over France’s ability to manage its mounting economic challenges. Investors worry that continued political instability could hinder the government’s capacity to address the nation’s enormous sovereign debt, potentially forcing Macron to call new legislative elections if Lecornu’s efforts fail.
The political uncertainty has particularly emboldened the French far-right, led by Marine Le Pen and Jordan Bardella, who stand to gain if the government collapses.
Financial markets reacted swiftly to the crisis. French stock markets fell sharply, with the CAC 40 index underperforming the rest of Europe by roughly 14% since early last year. Meanwhile, the yield on France’s benchmark OATS government bonds rose above other eurozone bond yields, surpassing Italy’s BTPs for the first time since the euro’s inception in 1999, signaling shaken investor confidence in Europe’s second-largest economy.
France’s debt situation is particularly alarming. The country holds around €3.35 trillion ($3.9 trillion) in consolidated national debt, equivalent to roughly 113% of GDP and expected to rise to 125% by 2030. With a budget deficit of 5.4–5.8% this year, France now carries the largest deficit in the European Union, second only to Greece and Italy in debt-to-GDP ratio.
This fiscal pressure necessitates significant cuts to meet EU targets, but political resistance makes austerity measures highly contentious.
According to dw.com, higher debt risk has translated into elevated borrowing costs. While German bonds yield around 2.7%, France must pay nearly 3.5% on its debt. Economist Friedrich Heinemann of the ZEW Leibniz Center warns that the eurozone’s stability could be at risk if France’s finances continue to deteriorate amid ongoing political uncertainty.
Although he does not anticipate an immediate debt crisis, Heinemann emphasizes that a major country like France facing political turmoil poses long-term risks to the euro.
The situation is further compounded by global fiscal pressures. Germany, Japan, and the US, among other major economies, are issuing large volumes of government bonds this fall to fund spending, keeping global bond markets under strain.
The only mitigating factor for France has been investor hope that the European Central Bank will intervene to stabilize markets, though reliance on ECB support carries credibility risks and cannot be guaranteed.
Heinemann also criticizes the European Commission, suggesting it bears partial responsibility for France’s fiscal troubles. According to him, repeated political compromises allowed France to accumulate debt without facing sufficient pressure to enact reforms, while Germany retained greater fiscal flexibility.
The ongoing political and financial uncertainty in France highlights the complex interplay between governance, debt management, and eurozone stability, leaving markets and policymakers on edge.
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